Forthcoming changes to ISA regulations will come into effect on 1 July, well into the 2014/15 tax year. So, how will your allowance be affected before and after this point?
The Chancellor recently announced a new set of regulations for tax-free ISA accounts to benefit savers.
From 1 July, savers will not only receive a significant rise in their allowance to £15,000, but they will also have the flexibility to save the full allowance in cash for the first time.
All existing ISA accounts will become new ISAs (or NISAs) from July and will offer far more flexibility to savers.
What Happens Between April and July?
Between 6 April and 1 July, ISA accounts will continue to work as they did before.
There will be a small increase in the annual allowance to £11,880, of which half (£5,940) can be paid in cash. (See Cash ISAs: an Introduction for more details.)
Savers will also be able to arrange ISA transfers in the same way as before, for both new and old ISA funds.
What Happens from July?
As of 1 July, all tax-free ISA accounts, whether they originate from the current tax year or previous tax years, will become NISAs.
At this point, savers will be granted a new limit of £15,000, which can be saved in cash, stocks, or any combination of the two.
Savers will also be able to transfer funds freely between stocks and cash. As it stands, savers are only able to transfer cash ISA contributions into stock ISAs.
What Happens If You Open an ISA Between April and July?
As before, savers may only invest in one cash and one stock ISA in any particular tax year.
If you have already paid into a cash or stocks ISA between 6 April and 1 July, you will not be able to open a new ISA of the same type until the next tax year begins.
However, you will still be able to transfer to a new provider. Any amounts paid in after the start of the 2014/15 tax year will need to be transferred in full, though deposits made in previous tax years can be transferred in part or in full into one or more new NISA accounts.
(See our guide on Transferring Cash ISAs for more details.)
Any subscriptions already made into an ISA between 6 April and 1 July will count towards the £15,000 limit. So, a saver who has already deposited £5,940 into an ISA in this period will be able to increase their deposits in cash or stocks by a further £9,060 from July.
What About Fixed-Rate ISAs?
But additions to NISAs opened between April and July will be subject to the terms and conditions stipulated by a bank or building society.
Banks are under no obligation to allow savers to add to fixed-rate ISAs, though several have said they will allow additional deposits when the rules change.
Savers ought to think about this carefully. If someone pays into a cash ISA between 6 April and July and the terms of this account do not allow further additions, they cannot open a new cash NISA until the following April.
They can attempt to transfer the current ISA to another provider, but may incur a loss of interest as a result.
What Have the Banks Said?
Several banks and building societies have offered savers a lifeline to top up their new fixed-rate ISAs once the tax-free allowance rises to £15,000 - though the window of opportunity differs between providers.
Santander will allow savers to make deposits into the popular two-year fixed-rate ISA (2.3%) until the end of August. Savers will have two full months to add to their tax-free account.
Halifax is also offering a generous window for savers to add funds to new fixed ISAs. The bank has extended the deposit window of its two-year ISA from 60 days to 180 days, which extends well beyond July.
Other providers, including Nationwide and the Leeds Building Society, have said that anyone who opens a fixed rate cash ISA between 6 April and 30 June 2014 will be able to add to it during July. RBS and NatWest will allow until the 11th August for fixed-rate account holders to top up their ISAs.
If you are interested in opening a fixed-rate ISA account, it is worth checking whether the provider is offering any flexibility to allow for the new ISA limit in July.
What About Stock ISAs?
There are additional changes in July to allow investors to acquire the following to hold in stocks and shares NISAs:
- Some Core Capital Deferred Shares issued by a mutual society.
- Some securities, such as retail bonds, with a maximum five year remaining term.
- Investments such as company shares, shares in a collective scheme, and some insurance policies.
Savers will also be able to hold cash within their stock NISA if their provider allows it, allowing a single NISA to accommodate both types of investments.
Any transfers involving stock ISAs will normally take up to 30 days to complete from the point at which the transfer is requested. Cash-only transfers should be completed within half this time.